Austar digs in as digital take-up tells

The success of the free-to-air television networks’ digital channels hurt the pay TV industry last year. They also, according to
John Porter
, chief executive of regional pay TV company Austar United Communications, made 2010 “the year of free-to-air TV, to some degree".

While Kim Williams, chief executive of capital-city pay TV operator Foxtel, has played down the impact of the free digital channel, Mr Porter admitted they had squeezed his company’s subscriber growth.

“Everything but the kitchen sink was thrown at us last year, including the free-to-air digital channels, weak consumer spending and internet TV," Mr Porter said.

“Given all that, a 3 per cent increase in subscribers was a good result." Last week Austar reported its subscriber base had increased 3 per cent to 764,219 at December 31, including a 1.5 per cent lift in residential subscribers.

Although free-to-air digital channels such as Nine Network’s Go and Gem, Seven Network’s 7Two and 7mate, the Australian Broadcasting Corporation’s three channels and Ten Network’s One affected Austar’s performance, Mr Porter said the TV sector was “not a zero-sum game".

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“Free-to-air TV and subscription TV compete in different games. We are all about subscription revenue, while their focus is advertising revenue. They are not the same thing."

Austar’s subscriber growth last year was lower than some analysts predicted, but its 5 per cent lift in revenue to $711 million and 6 per cent growth in operating cash flow (Austar’s version of earnings before interest, tax, depreciation and amortisation) to $245 million was higher than some analysts had forecast.

Mr Porter said Austar’s sales growth had improved since late January but he would not predict its full-year subscriber, revenue and earnings growth targets.

“We are planning for a better year in terms of subscriber numbers, revenue and so on," he said.

Austar’s operating costs increased just 0.3 per cent to $147 million last year.

Mr Porter said the company was budgeted for cost growth in line with inflation plus 1 per cent in 2011.

“But that depends on the trading environment," he said. “If consumer confidence picks up and people are more willing to spend, we’ll make hay while the sun shines."

Austar’s marketing costs rose about $1 million during 2010, to $28.9 million, while its salaries and labour-related costs climbed from $74.1 million to $78.2 million.

Its network and carriage costs jumped from $22 million to $33.9 million. “That’s what we pay Foxtel to manage the platform for us," Mr Porter said. “The costs went up because we added more transponders for high-definition TV." (Austar pays Foxtel for part of the satellite capacity the latter leases from Optus.)

Share-based payments related to an incentive scheme for senior executives fell from $18.1 million in 2009 to $12 million last year.

The management fees Austar paid United States-based Liberty Global, which owns 54 per cent of the Australian company, fell from $3.1 million to $2.6 million because of the weaker US dollar. Austar pays Liberty $US200,000 a month.